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In inventory management, the economic order quantity (EOQ) is the optimal reorder amount that minimizes the total costs of ordering and carrying stock.
Calculating the economic order quantity of stock items can help you reduce inventory costs. Holding costs (carrying costs) are the costs to store inventory, including the storage space, rent, property tax, insurance, item deterioration and obsolescence etc. The more inventory you order and carry, the higher the holding costs.
For more information, read our blog on the guide to EOQ.
EOQ guide blogEOQ = √((2 x Annual Demand x Cost per Order) ÷ Annual Holding Cost per Unit)
The economic order quantity (EOQ) formula helps businesses calculate the optimal order quantity that minimizes total inventory costs by balancing ordering and holding costs.
This calculation identifies the point where these costs are balanced, helping reduce excess inventory while maintaining product availability. Holding costs include expenses such as warehousing, insurance, obsolescence, and capital tied up in stock.
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